• New Debt Settlement Protections Enacted by FTC Include Improved Disclosure Requirements and Stricter Rules on Fees
  • November 8, 2010 | Author: Matthew Kasey Ratliff
  • Law Firm: Strasburger & Price, LLP - Dallas Office
  • The Federal Trade Commission (“FTC”) recently adopted new rules designed to curb deceptive and abusive practices in debt relief services and ensure that consumers don’t pay large fees without getting relief.

    • Applicability.  The new rules cover telemarketers of for-profit debt relief services, including credit counseling, debt settlement, and debt negotiation services. The rules do not cover non-profit firms, but do cover companies that falsely claim non-profit status.

    • New Disclosure Requirements. As of September 27, 2010, debt settlement firms are required to disclose to consumers the time it will take to reduce the debt, when the firm will negotiate a settlement with creditors, and how much money consumers must set aside before a settlement offer will be made. Debt settlement firms also must tell consumers about the negative consequences of not making payments to outstanding creditors, such as being subject to collections or lawsuits, decreased credit worthiness, and increased debt.
    • Limits on Fees. A new advanced fee ban also went into effect on October 27, 2010 and specifies that fees for debt relief services may not be collected until: (1) the debt relief service successfully settles or changes the terms of at least one of the consumer’s debts; (2) there is a settlement agreement, debt management plan or other agreement between the consumer and the creditor, that the consumer has agreed to; and (3) the consumer has made at least one payment to the creditor as a result of the agreement negotiated by the debt relief provider. The advance fee ban applies only to consumers who enroll in a debt relief service after October 27, 2010.
    • Limits on Fees. There are also additional restrictions on debt relief companies that require consumers to set aside provider fees and savings used to pay creditors in a “dedicated account.” Providers may only require a dedicated account if five conditions are met: (1) the account is maintained at an insured financial institution; (2) the consumer owns the funds (including any interest accrued); (3) the consumer can withdraw from the debt relief service at any time without penalty and receive all unearned provider fees and savings within seven business days; (4) the provider does not own or control or have any affiliation with the company administering the account; and (5) the provider does not exchange any referral fees with the company administering the account.